Insurance: Standard Life profits up 51% after reinsuring annuity risk

Strong life insurance and pension sales helped boost first-half profits by 51% at Standard Life, which also benefited from a deal to reinsure half its annuity liabilities and reduce the financial risk posed by Britons living longer.

The life insurer said yesterday the outlook remained positive despite difficult market conditions. It raised its half-year dividend by 7% from last year to 4.07p a share - good news for its 1.5 million small shareholders. When Standard Life demutualised in 2006 and floated on the stockmarket at 230p a share, policyholders received an average of 600 shares each.

Previously the UK insurer with the largest annuity book, Standard Life struck a deal with Canada Life in February to reinsure £6.7bn of its £12bn portfolio of annuities - contracts that pay the owner a regular income until they die. This reduces the impact from people living longer and resulted in a one-off gain of £119m. Excluding this, profits were up 18%.

The deal is the largest of its kind. David Nish, finance director, said: "When we demutualised we had a significant longevity exposure. This is the strategy we've been pursuing for the last two to three years: to get our risk position much more in balance."

Other pension providers are also tackling this problem: Friends Provident moved part of its pension scheme to Norwich Union, Britain's largest insurer, in a £350m deal in May; Scottish Widows, the insurance arm of Lloyds TSB, is in talks to reinsure its £6bn annuity portfolio.

The group's operating profits before tax climbed to £534m in the first six months of the year, from £353m a year earlier. Like rivals that have seen the value of investments drop because of the slump in stockmarkets, Standard Life reported a decline in funds under management of 4%. It enjoyed strong growth in its core insurance business, with life and pensions sales worldwide up 5% to £9.1bn. Sales in the UK were down 1% at £7.2bn, and fell 28% in Europe, but Canada put in a strong performance with 45% growth. In Britain, which accounts for three-quarters of the firm's business, net inflows into its life and pension schemes fell by 3% to £1.4bn.

Sandy Crombie, chief executive, said: "There are a number of challenges to the UK business. It will continue to be a difficult market." He noted the slump in consumer confidence, the housing downturn and "wildly fluctuating" stockmarkets but said Standard Life was less affected as it operated at the upper end of the market.